U.S. service companies expanded in May

AP Photo/Rogelio V. Solis, FileIn this May 29, 2012 photograph, Big Apple Inn grill cook Tyechia Davis prepares the sausage meat for a "smoke" sandwich in Jackson, Miss. U.S. service companies, which employ roughly 90 percent of the work force, expanded at a slightly faster pace in May, marking the 29th straight month of expansion.

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) — U.S. service companies, which employ roughly 90 percent of the work force, grew at a slightly faster pace in May. It marked their 29th straight month of expansion.

The Institute for Supply Management said Tuesday that its index of non-manufacturing activity edged up to 53.7 last month from an April reading of 53.5.

The May reading was slightly below the long-run average for the index of 53.9. A reading above 50 indicates expansion.

The new-orders component of the index rose, suggesting that demand will be solid in coming months. But there was concern that the employment component, though still signaling expansion, slipped to the lowest reading since November.

Jennifer Lee, senior economist at BMO Capital Markets, noted that only 13 of 18 industries reported growth in May. That was the smallest total since the number stood at 12 in January.

But she said it was a relief that the economy's non-manufacturing sector "didn't take as much of a hit" as manufacturing did this spring.

Service-sector employers that are hiring include Dining Alliance, a small company that acts as a buyer's club for restaurants and food service companies. It plans to add seven employees to its 55-person staff.

Dining Alliance helps smaller and medium-sized companies and chains obtain volume discounts on food, linens and other goods by pooling their purchases. It has 13,000 members, including Wynn Casinos and Salsarita's, an 82-unit Mexican chain based in Charlotte, N.C.

John Davie, Dining Alliance's chief executive, said he's noticed more optimism in the past six months.

"We're seeing more people opening restaurants, restaurants that exist opening more outlets, and ... we are seeing a surge in franchisees," Davie said.

The ISM survey covers all sectors outside of manufacturing. That includes retail, construction, financial services, health care and hotels.

It reached the highest point in 12 months in February, when it was 57.3.

The ISM's manufacturing index, released last week, showed that manufacturing grew more slowly in May, hampered by weaker hiring and declining production. But in a hopeful sign, manufacturing orders hit a 13-month high.

The service sector includes low-paying positions in retail and restaurants. But it also covers higher-paying jobs in professions such as information technology, accounting and financial services.

The government reported Friday that the overall economy added just 69,000 jobs in May, the smallest number in a year, while the unemployment rate edged up from 8.1 percent to 8.2 percent.

The dismal jobs report heightened fears that the economy is struggling. Economists are concerned that the economy could sputter this year just as it did in 2010 and 2011.